When Madonna first swept into the African nation of Malawi, chequebook in hand, she vowed to save its impoverished people. Five years later, she has brought them two controversial adoptions, broken promises and a charity caught up in a fraud investigation.

A flight of grey mourning doves scatters as dusk descends on the Malawian village of Zaone. On the edge of town, elderly matriarch Lucy Chekechiwa eats cold lumps of cassava root. Pinned to the wall of her one-room home is a grainy photograph of a woman and child. The woman is, unmistakably, Madonna; the baby she is clutching is Mercy James, Lucy's granddaughter. The 62 year old hasn't seen the girl, now five, since Madonna took her to London on a private jet in 2009.

Madonna is not the first Western traveller to Malawi to find her life changed by the poverty she encountered – nor the first to try to effect changes. This tiny country, wedged between Tanzania, Zambia and Mozambique, is horrifically poor. About 12 per cent of its 15 million inhabitants are infected with HIV/AIDS; life expectancy is just 44 for men and 51 for women, according to the World Health Organization; and 65 per cent of the population lives on just $1 a day.

The singer's interest in Malawi began in 2006 when she secretly visited a number of orphanages there. According to Hollywood lore, she had been encouraged to adopt an African child by Brad Pitt, a close friend of her then-husband Guy Ritchie, and was said to be so moved by what she saw in Malawi she got out her chequebook straightaway, offering tens of thousands of dollars to individual non-government organisations (NGOs).

That same year she went back, filmed a documentary about the country's orphans, and announced she was setting up her own charity, Raising Malawi. Her motives, she admitted, were mixed: "I thought, 'I have to help. I have to save these people.' And then I thought, 'Wait a minute; I think it's the other way around. I think they might be saving me.'"

Soon afterwards, she and Ritchie adopted their first child from Malawi, one-year-old David Banda. Controversy followed almost immediately when David's father, who had been unable to afford to feed his son, claimed he had not understood the adoption was final; he said he thought the couple would merely care for and educate the boy overseas.

Undeterred, Madonna ploughed on with her mission to "save" more of Malawi's children. A series of high-profile fundraisers organised by the singer in Hollywood culminated in a star-studded event in 2008, co-hosted by Gucci, in a massive marquee at the UN headquarters in New York. In front of A-listers, such as P Diddy, Gwyneth Paltrow and Drew Barrymore, Madonna said that, inspired by her adopted religion of Kabbalah, she was going to set up a school in Malawi. "I want credibility as a philanthropic organisation," the singer told the $2500-a-plate crowd, as she punched the air.

The Raising Malawi Academy for Girls was to be a $15 million boarding school for 400 girls, a template already set up by Oprah Winfrey in South Africa. Madonna's project aimed to focus on law and medicine. Like Oprah, Madonna hoped to have a nationwide application process, selecting the best female student from each village for the school.

The launch raised nearly $4 million and Madonna reportedly promised to match every dollar anyone gave. Questions were asked about why a pop star and a fashion label had been granted use of the hallowed UN lawn. Gucci had no further links to Raising Malawi beyond the event.

In Malawi, though, the government was so excited about a prestigious school being established in their country they agreed to donate 450,000 square metres of land for the project (which meant evicting the people living on it), charging only $8600 a year for a 99-year lease.

Then, in 2009, Madonna decided she wanted to adopt another child from Malawi. The country does not generally allow international adoptions to prospective parents who have not lived in the country for at least 18 months, fearing its children might be exploited by child traffickers. But again, they made an exception for Madonna. On her next trip, she overcame legal challenges both by local authorities and the family of the girl she intended to adopt and, within a few months, in June 2009, she came home with three-year-old Mercy James.

Madonna also visited the site of her proposed academy and symbolically laid the first brick, inscribed with the words "Dare to Dream". (When the hygiene-conscious singer later waved to TV cameras, she was clutching a bottle of hand sanitiser.) Somehow the image seemed to symbolise a Westerner who was not willing to get her hands dirty.

In Lilongwe, the Malawian capital, serious concerns were being raised by other charities about Madonna's links to Kabbalah. American and British evangelist groups that had been established in the country for decades feared a battle for souls when Raising Malawi announced it would introduce Spirituality for Kids, Kabbalah's youth charity, to Africa.

What she could not have foreseen was that the LA-based Kabbalah Centre, Madonna's partner in the project, would soon be under investigation for fraud by the Internal Revenue Service (IRS)Raising Malawi would be implicated, and Madonna herself would be left looking, at best, foolish. Worse still, around $3 million in raised funds seems to have disappeared in the charity's head offices in LA without ever reaching Malawi.

In March, in a carefully worded statement, Madonna said the school would not be built and she would now focus on other projects in the country. Nowhere was the disappointment felt more keenly than around the site of the planned school.

"This was our dream, too, for the girls of our village," says Grevansio Makina, 42, who lost his maize field to the project. "Our daughters have been working harder, studying, aiming for this dream – to live and study in this dream school. But their hopes have died and so have our hopes of a better future for them."

The abandonment of such a crucial part of her vision – the school itself – was a body blow to Madonna, not least because it brought the activities and methods of her charity under greater scrutiny. Raising Malawi seems to have resorted to controversial techniques in order to raise money, and the scale of its reach appears to have been exaggerated – presumably to persuade donors to dig deeper. The charity employed a US-based team to raise funds through cold-calling, and a website was set up on which dramatic statistics purported to show both the scale of the need in Malawi and what the charity was doing there.

For a start, it stated the charity's work had already reached more than a million orphans in a country where, according to some estimates, the total is 850,000. Many of the figures it gave were wrong, and a number of projects attributed to the charity were, in fact, projects set up by NGOs that existed long before it was created. "Raising Malawi has hijacked a number of existing projects, some of which have been in operation for decades, and advertised them as their own," says a senior source at Oxfam.

Until recently, blogs on the website claimed that more than 66,000 children and caregivers living with HIV/AIDS, malaria, or other diseases received life-saving treatments thanks to Raising Malawi; and 73,000 children and caregivers are receiving nutritious meals daily. The website previously stated 10,000 children had received supplements to counter the effects of severe malnutrition – which, if true, would rival the UN effort on the ground. Raising Malawi has now radically revised the website, changing statistics, like how many community-based organisations it has helped – from 1750 to "several".

Some time before the school project stalled, the nation's information minister, Patricia Kaliati, praised Madonna: "What she is doing for the orphans of this country, very few superstars can do that – she has managed to raise their plight on the world stage. Madonna has built clinics in rural areas where the government has failed to reach. Because of that, she has saved many lives of pregnant mothers who could have died." Has she? Leading Malawian journalist Raphael Tenthani says not: "Raising Malawi has not been building clinics in rural areas to save lives. This is complete misinformation."

In a statement posted online, Madonna insisted she was still committed to the country: "My original vision is now on a much bigger scale. I want to reach thousands, not hundreds of girls. I want to do more and I want to do it better," she said. But the Ministry of Education spokesperson, Ben Phiro, says she has yet to consult the government on her plans: "We know nothing about this."

In the ruckus that followed the axing of the academy – allegations of local incompetence, financial mismanagement and "outlandish expenditures" countered with legal action from African staff for severance pay – the most important fact to emerge is that only $850,000 of the $3.8 million spent on the academy was actually spent in Malawi. The lion's share, almost $3 million, was handled by the Kabbalah Center, including more than $1 million in unspecified "construction costs", according to their accounts.

In New York, Madonna has been fighting what one aide calls an "absolute shit storm". When the news broke of the school project's collapse and, later, the IRS probe, the star's PR machine went into overdrive. Statements were issued and journalists close to the singer's agent, Liz Rosenberg, wrote sympathetic pieces on entertainment websites, claiming that Madonna had been duped by the Malawians she employed to build the school, and that she had been robbed by her closest charity advisers in the US.

For hardened aid workers in Africa, the demise of the project has come as little surprise. "She has been spectacularly naive," said one Unicef contact.

In Malawi itself, Madonna's detractors are more vitriolic. "What has happened was written in the script," says Desmond Kaunda, director of the Malawi Human Rights Resource Centre. "The world's greatest economists and minds have failed in Africa. They are still failing. Madonna is a singer. What does she bring to the table? Nothing but the fact that she is famous – that is not enough."

Mercy James, whose mother died five days after giving birth, was raised by her grandmother and uncles at first, but placed in the care of the Kondanani Children's Village as they couldn't afford to buy formula to keep her alive. They can barely feed themselves. "We loved the girl so much. She belonged to us. But what choice did we have but to let her go? Does that mean we lose her completely?"

The adoption paper reads: "Ms Madonna married Guy and they have one son. Mr Ritchie continues to visit the family, but Ms Madonna has custody rights. She is in sound mind and owns a personal house in Beverly Hills in California. She has a large yard with a swimming pool, which is fenced. A shopping mall within walking distance. She has another house in London. Financial information shows she has impressional [sic] income in excess of $500 million. She is intelligent, articulate and outgoing, and shares strong family values."

A stamp says "approved".

Malawi's Human Rights Consultative Committee, a coalition of around 85 NGOs, has accused Madonna of "child kidnap" and of being a "bully" when she adopted Mercy James. Madonna, who clearly loves the children, has never commented on the dispute.

Through the torn, flapping curtain that passes for a door on the tent belonging to Mercy James's grandmother, the view is of a charred and spent landscape: the fields of millet that once surrounded this community have long been sacrificed for charcoal. Children skip between blackened tree stumps. In front of mud-block homes their mothers sell miserable packages of dirt-coloured groundnut and chillies. Lucy says Mercy James whispers to her on the wind at night. "Why did God allow this woman to come here?" she asks, breaking down in tears.

only $850,000 of the $3.8 million spent on the academy was actually spent in Malawi. The lion's share, almost $3 million, was handled by the Kabbalah Center, including more than $1 million in unspecified "construction costs", according to their accounts.

I wonder if the citizens of Malawi thought a $850,000 donation was a very generous donation... and I wonder if they knew they were receiving only 22% of the total donated amount. This take-out payment is precisely how non-profit religious organizations profit from Save The Orphan schemes, and why so many poverty-stricken individuals do not act grateful when they are told how much they are to receive from a religious-based charity. While I am not surprised how little the poor orphan-children get, I am disturbed by the comparison of 22% as opposed to 78% of the total sum. Seems to me someone else should be making the larger sacrifice, and take less of the lion's share for better orphan care